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Fitch Ratings's Container Shipping Shifts To Vertical Integration

Logistic News - Published on Mon, 24 Jun 2019

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Fitch Ratings said that global container shipping is focusing more on vertical integration, moving into logistics and away from consolidation amid slowing growth in container trade as well as digital disruption. The credit implications are not yet clear as shipping companies’ ability to generate relatively stable cash flows through vertical integration could be offset by the competitive and fragmented nature of logistics markets. We believe that the consolidation wave in container shipping is approaching its end. The top six container lines account for over 70% of global market capacity. While we do not discount the possibility of further consolidation through the defaults of smaller, financially weaker companies or their acquisition by stronger rivals, we believe any large-scale acquisitions are unlikely. This is because only limited additional cost efficiencies are achievable through further increases in scale. Moreover, obtaining regulatory approvals may become challenging due to competition issues, while funding large acquisitions requires an ability to demonstrate a clear deleveraging path, which could be difficult in the prevailing market conditions.

Shifts in strategic initiatives announced by a number of container shippers highlight the emerging trend of vertical integration into logistics. This includes the acquisition of CEVA, one of the world’s leading logistics companies, by the fourth largest container shipper, CMA CGM. Meanwhile AP Moller-Maersk is transforming itself into an integrated container logistics company with a view to balancing its Ocean shipping earnings by developing its non-Ocean business by 2023.

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Posted By : Mohan Sharma on Mon, 24 Jun 2019
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